Tightening the belts

"We continue to work through the sustained weakness in freight demand." --Robert Weaver, president, P.A.M. Transportation

It's been a tough year in the freight markets, as you no doubt know so very well by this point. Problem is, it's looking like the grim times are going to continue for a while -- probably well into next year -- and that's going to sustain a lot of negative pressure on the bottom line of many trucking firms.

According to consulting firm FTR Associates, truck ton-miles are forecast to decline 2.2% by the end of this year and rise only a miniscule 0.7% in 2008. “Nearly all economic indicators suggest continued sluggishness for the trucking industry in the near term,” Bob Costello, chief economist for the American Trucking Assn. (ATA), said recently. His group reports that truckload freight volume is down by 2.2% so far this year. “We expect tonnage to remain choppy in the foreseeable future, a trend that started a couple of months ago,” he said.

On top of the this, the very underpinnings of freight flows themselves are changing -- and quite rapidly. Typically, fall represented a "peak season" for truck tonnage, as manufacturers and retailers geared up for the holidays, especially Christmas. Over the last two years, however, that's changed due to the rapid rise in the use of gift cards among consumers. So many people are buying gift cards now that the "peak season" isn't really a peak anymore.

Comments from Phillip Swagel, assistant treasury secretary for economic policy, about other factors affecting the economy just add to the concerns truckers will face on the road ahead. "Looking forward ... the ongoing drag from construction, the problems in credit markets, and higher oil prices have led private forecasters to reduce their projections for GDP growth in the fourth quarter of 2007 and into 2008," he said in a speech to the Securities Industry and Financial Markets Association this week. "The downturn in the housing sector has not ended as quickly as appeared to be possible at the end of 2006."

Then there are the cost pressures -- especially when it comes to fuel. This week alone, the price for a barrel of crude oil on the world market soared above $93 -- and many experts believe prices will hit $100 per barrel before the year is out. You can imagine what that will do to diesel prices. And while forecasters are predicting a warmer-than-normal winter for much of the U.S., energy prices are still projected to rise.

And I don't need to remind you that home heating oil -- which provides much of the winter warmth for homes in the Northeastern U.S. -- is made from the same base petroleum stock as diesel fuel. One cold snap, and diesel will take a back seat to home heating oil production. That will push prices up in a hurry.

One thing is for sure from all of this: It's going to be a rough patch for truckers large and small for a while here. Only thing to do is tighten the belts, hunker down, and keep rolling forward.